ON ENERGY DEFICIENCY AND FALLING TEXTILE EXPORTS When S M Tanveer
moved to Lahore in the late 80s to set up Din Textile Mills Limited, it was the right thing to do
with deteriorating security situation in Karachi. Today power cost differential between mills
operating in Punjab and mills operating in Karachi has crossed Rs 10 million per month per mill
due to this non-availability of gas. So unlike the eighties, moving the facilities where gas is
available makes more sense today. However, dismantling the entire mill and re-erecting it all
over again is a tough job. Also the biggest roadblock for any business in Karachi is the security
situation in the metropolis. 'Even then, many players are considering of moving to Karachi',
disclosed Tanveer.
With very little gas available for the textile firms of Punjab, Tanveer highlighted that the industry
has no other cost-effective fuel options. 'Running the captive power plants on furnace oil or
diesel is very expensive. Coal cannot be brought in because you need to set up coal projects of at
least 40-50MW, whereas the capacity units area all scattered in the industry, currently. Whether
it is Din Textile or APTMA, 70 percent of my time is spent doing costing', he lamented.
When asked how the internationally low cotton prices have affected demand and the country's
textile exports, Tanveer emphasised that APTMA for the very same reason has been focusing on
the declining volumes, which is quite significant when compared to last year. He further added
that while the textile exports have been affected by the world-wide decrease in demand, power
shortage and the rupee appreciation have had the greatest adverse impact on the sector's exports.
APTMA's Chairman presented the case of decreasing textile exports amid worsening energy
crisis. 'Our textile exports in quantitative terms, calculated at today's price, has fallen by than one
billion dollars in the last six months, which projected for another six months would surmount to
$2.3 billion dollars lost in cotton yarn and cloth exports. And. More than 40 percent of our
production capacity is impaired over the last over year due to the shortage of energy', he
explained.
ON COST OF POWER AND INTER-PROVINCIAL DISPARITY 'In last one year, the
price of electricity has gone up by 67 percent, and that too for Punjab only. Why do I say this? 86
percent of PEPCO's load goes to the DISCOs in Punjab. APTMA's chairman also pointed out
towards inter provincial disparity in energy supply; he termed the current scenario with 10-12
hours of daily electricity load-shedding and 16 hours of daily gas suspension across Punjab only
as ill fit for regional growth in trade and investment.
'This has rendered our exports (Punjab) uncompetitive in the region', he said while pointing out
that Punjab incurs higher cost due to interruptions and unavailability of gas supply, while Sindhbased
industry fares pretty well when compared to the regional peers on electricity tariffs for its
captive power plants due to continuous gas supply.
Delving further into the inter-provincial cost disparity, the APTMA Chairman narrated that while
the electricity units from gas and the grid are Rs 6.75/KWh and Rs 14.81/KWh respectively for
Sindh, Punjab and KPK, gas supply availability of only 30 percent for Punjab and 100 percent
for the others, raises the average energy cost to Rs 12.31/KWh in Punjab. This gives rise to
energy cost differential of around Rs 82 billion per year for the textile industry in Punjab. The
situation is worse for the entire Punjab based industry as can be seen from the illustration where
this differential amounts to Rs 150 billion per year.
'And now with the government planning to even take away the 30 percent of gas availability this
winter, the inter-provincial cost differential will increase abnormally', he warned. S M Tanveer
told BR Research that in a recent summary moved and rejected for not cutting gas supply in
winters, there were proposals to provide electricity to the textile sector of Punjab instead of gas.
'I have to look at my cost, whatever fuel is being used; and since we have peak hour and off-peak
hour rates for power, replacing gas with electricity will further increase the average energy cost
for Punjab', he lamented.
'The textile mills with no gas are paying 130 percent higher cost in Punjab than industries in
other provinces. This cost differential for 55 mills with 135MW captive power capacity is more
than Rs 10 billion annually if compared with Sindh & KPK', he further informed.
ON GAS LOAD MANAGEMENT The APTMA Chairman was of the view that the
government should follow a plan that is in the best interest of the country, which includes
completely phasing out CNG - a big source of drain of the scarce natural resource.
'Right now, 1400mmcfd gas is the estimated available in SNGPL's system for Punjab, out of
which 500mmcfd goes for domestic cooking on average. Though the demand of the entire textile
industry in Punjab is that of 300mmcfd, we demand at least 100mmcfd 0f the remaining
900mmcfd this year to keep the industry running. All in all, the government is left with
800mmcfd of gas in the immediate term to be distributed elsewhere.'
When asked about the possible near term solution to the issue at hand for the textile sector of
Punjab, APTMA Chairman told BR Research that though 300mmcfd gas supply is the
requirement for the textile sector, an hourly basis for gas supply instead of the number of days in
a week would help the industry to at least survive by managing its peak hour and off peak hours.
'We are demanding at least 100mmcfd gas in winter, which we are currently getting', he said. On
this note, it means that at least no new gas is added to the system; APTMA Chairman pointed out
to a depletion of 200mmcfd of gas from the system in last one year.
'After the winters, the government is planning to bring in LNG. The problem with LNG is that
since it will be imported it will be expensive. At $18, my cost of doing business would again be
uncompetitive with other provinces, and my concern is my cost. The textile sector is on top priority for electricity in various aspects. First on Supreme Court's ruling of equitable
distribution of electricity, the industry has first priority. Second, as per IMF's deal, the
government will give electricity where there are no line losses beyond a certain threshold, there
is 100 percent recovery, and the rate is highest. Under such conditions industry again enjoys
priority as it has its own feeder directly from the grid, which is the easiest to monitor. Third,
under NEPRA's law, the industry has priority over many other sectors for electricity in case there
is shortage', he informed.
On being asked whether Sindh's gas supply should be reduced, Chairman APTMA said he would
never even think of it, He was of the view that Sindh is a part of the country and undoubtedly
should be allowed to prosper and grow.
ON POSSIBLE SOLUTIONS TO THE CHALLENGES OF THE TEXTILE INDUSTRY
'Apart from raw material cost, which accounts for 67 to 70 percent of sales, cost of electricity
and power has increased from 9.9 percent in 2013 to 11.67 percent in 2014 for Din Textile Mills
Limited. This is the second largest cost component', he added.
When asked to share his views on the possible short term and long term solutions to the situation
at hand, APTMA Chairman reiterated that full provision of 300mmcfd gas to generate 1500 MW
captive power on sustainable basis, ensuring viability of industry and ending present inter
province disparity of energy supply hold key in solving the ongoing energy related issues in
Punjab's textile industry. He also emphasised on the availability of electricity for 58 prime
electricity using textile mills.
'It is ironic that the government can float Eurobond with eight percent interest where it will have
to return the principal plus the mark-up in five to ten year time, but it cannot approve rebate on
incremental textile exports that will bring in permanent money and investment in the country', he
lamented. He also added that all efforts would further be cemented with the announcement of
regionally compatible Textile Policy for 2014-19
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